Every week, I am hearing about more and more restaurants in San Francisco closing. According to the Golden Gate Restaurant Associations, restaurant closures have begun to outpace openings by nine percent. Just in 2019, nearly 400 of them have closed their doors.
In analyzing the reasons for restaurant failure, I have came across three main reasons that owners cited: delivery apps such as UberEats or Doordash, tech companies' cafeteria providing free food to employees, and the high cost of doing business in the city.
At The Story of Ramen, our concept is quite different from a traditional restaurant. As most San Francisco restaurants are experiencing tough times, we just saw 25 percent year-to-year customer growth.
Here are my thoughts on the restaurant failure trend:
1. Restaurant food is commoditized. With UberEats and Doordash, restaurant food becomes a commodity. The last time I scrolled through one of these apps to search for Indian food, all I saw was that every place had my favorite butter chicken dish. I cannot tell a big difference between a restaurant on Mission Street selling it for $13.95 and a restaurant on Jones Street selling for $10.99. So I ended up picking the $10.99 one. The lack of branding and differentiation leads them to compete solely in price. That's why their margins suffer in such an expensive city!
2. Restaurant people are old school when it comes to technology. During my recent encounter with an ex-restaurant owner, he explained that he did not know how to send or receive texts from his phone! I've also heard of some others who don't understand their own POS or booking systems. This may be a bit of extreme but restaurant owners who generally are not savvy in adopting or embracing technology will face trouble ahead. Many restaurant web sites have outdated content and lack features to drive business.
3. Restaurants focus on serving food, not experience. Yes, many tech companies offer free lunch and dinner to their employees; so they are not going to frequent at a brick-and-mortar restaurant. Meanwhile, at The Story of Ramen, we generate business from a variety of sources including some of those tech companies! We sell food as an experience. We attract many tech companies visiting us for their corporate team building events (or they call it "offsite team bonding event."). Many of these clients describe that they don't want to just pick a restaurant or a bar for their team offsite but a food experience that can bond their team more closely. The other day I walked by a dim sum restaurant in Richmond with a chef wrapping dumplings at the window. Many are already doing the "experience" by producing their products. But they are kept closed. Many customers would love the idea of a dumpling making event as they have their lunch or dinner. Instead, I bought my dumplings and left, only to want more of an experience.
I hope restaurant owners can radically re-think their business model and capture the golden opportunity of creating experiences in this exciting city.